ECB’s Rehn: Policy Stance Appropriate for Rebounding Economy and Remaining Uncertainty

10 September 2021

By David Barwick – FRANKFURT (Econostream) – The European Central Bank’s monetary policy decision yesterday reflects the strong recovery and, at the same time, the lingering uncertainty, ECB Governing Council member Olli Rehn said on Friday.

In a speech to open a conference co-organised by the Bank of Finland, which he heads, Rehn said that the ECB’s ‘very accommodative monetary policy stance’ was ‘appropriate for the rebounding Eurozone economy and the still remaining uncertainties.’

The updated staff macroeconomic projections of the ECB show the euro area to be ‘rebounding significantly this year on the back of the expected re-opening of the economy, strengthened policy support and economic recovery in the rest of the world’, he said. ‘The key underlying assumption for the current view is that containment measures can be relaxed rapidly in the second half of the year.’

Rehn criticised the ECB’s previous price stability definition as having been ‘less precise, and open to interpretation’ in addition to suffering from ‘a streak of asymmetry’ in that it came across as ‘more of a ceiling than a central target.’

‘The new 2% inflation target is symmetric and unambiguous’, he said. ‘Symmetry means that the Governing Council considers both slower and faster inflation to be equally undesirable.’

The new inflation target ‘serves as a buffer against deflationary risks and provides monetary policy with more space to react to a sharp decline in inflation’, he said.

‘A medium-term orientation for the inflation target also makes it possible, where necessary, to smooth out other economic shocks, such as shocks related to employment or financial stability’, according to Rehn. ‘If actual inflation is slower or faster than targeted, monetary policy will respond to deviations gradually, considering the nature of the economic disruption. Deviations estimated to be temporary may not be responded to at all, but seen through.’